Jan 4, 2003|
Auto: The year that was...
It was a year of turnaround for the Indian automobile sector in 2002. Apart from revival in demand and significant rise in market capitalisation on the stock market, the year 2002 also saw some momentous developments in the sector. The first and the foremost that comes to one’s mind is that Indian manufacturers have proven their ability to develop products without any foreign hand.
Before going in-depth into the aforesaid factor, consider the performance of the auto sector in the last one-year. Just to highlight the stellar performance of auto stocks on the bourses, the graph below highlights the return over a one-year period. If one had invested Rs 100 on January 1st, 2002 in TVS Motors, the investment as on December 31st, 2002 would have been worth Rs 311. ‘Total’ in the graph represents total return of the portfolio (over a one-year period), if one had invested Rs 100 in each stock mentioned in the graph. As evident, investors have benefited immensely from the rally in 2002.
Consider the performance of the each of the segments viz. two-wheelers, commercial vehicles (CVs) and tractors in brief. As far as the two-wheeler category goes, the shift in demand from geared-scooters continued during the year. Just to put things in perspective, Bajaj Auto posted a 31% fall in geared-scooter sales in 1HFY03. On the other hand, while the motorcycle segment is expected to have grown at 25% in 1HFY03, demand for ungeared scooters remained lacklustre. Contribution from moped and step-thrus continue to show downward trend.
CV manufacturers also saw a sharp revival in demand during the year. Backed by industrial recovery and robust demand for multi-axle CVs, key majors like Telco and Ashok Leyland saw a consistent rise in volumes during the year. Increased agricultural production translated into higher tonnage demand, which in turn provided support for freight rates. While freight rates in 1QFY03 increased by 10% and in 2QFY03, it was higher by 4% on a YoY basis. Tractor demand continued to decline on the back of weaker agricultural sector performance. Capacity utilisation was a disconcerting 50%, as manufacturers put a break on production in an effort to clear existing surplus inventory. After falling by 17% in FY02, we expect tractor sales to decline further by 20% in FY03.
* Our estimates
||CAGR (last five yrs)
||CAGR (next five yrs)
Having looked at the performance in FY02, what does the future hold for the sector? We expect commercial vehicle sales to remain robust over the long-term. As key road construction initiatives taken by the central government near completion by 2007, we expect demand for MUVs and trailer CVs to rise significantly. Like in the international markets, we expect the hub and spoke model to develop over the long term. This would aid growth. After falling significantly in FY03, we expect tractor sales to show a sharp upturn. Though it is mainly due to lower base, penetration levels in key regions are still at the lower end of the spectrum. As against the international average of 45 tractors per 1,000 hectares, India still lags behind significantly (10 tractors per 1,000 hectares).
From being just assemblers of critical components like engines till now, Tata Engineering (Telco), Bajaj Auto and TVS exhibited their ability to conceptualise, develop and successfully market models that were manufactured indigenously. This is of great significance from a long-term investment perspective. The efforts on the research and development (R&D) combined with the inherent advantage of low-cost labour will go a long way in establishing presence in the international markets.
Telco’s deal with Rover, UK is a classic case. As per the deal, Rover will market Telco’s passenger car, Indica, in UK with a different brand name. Though annual volumes are estimated at just around 12,000 units per annum, it assumes significance as an Indian manufacturer is able to exploit the advantage of low-cost manufacturing and a marketable product. In the future, two-wheeler majors have targeted at increasing contribution from exports from the South East Asian economies. That said, it has to be remembered that exports are not a money making proposition for auto manufacturers in the initial stage. Once a brand is established, auto majors could capitalise on their competitive advantage.
More Views on News
Aug 14, 2017
Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.
Aug 2, 2017
GST realted cost impacts Margins, Management expects good year ahead.
Aug 1, 2017
Good Recovery in the Scooters market, expects pick up in exports too.
Aug 1, 2017
New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.
Jul 6, 2017
Ends the year on a Flat note. Expects good recovery in the exports market.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407